The Aftermath of Quantum Mineral's Takeover

Some point to cunning strategy in First Quantum Minerals’ hostile takeover of Inmet; others say it was just good timing

In a slow year for mergers and acquisitions, in 2013 Vancouver’s mining sector saw one blockbuster deal as First Quantum Minerals Ltd. prevailed in a $5.1-billion hostile takeover of Toronto’s Inmet Mining Corp., creating one of the world’s largest copper producers.

When First Quantum first asked Inmet for its hand in marriage, it was hoping for a friendly courtship. What it got instead was the cold shoulder, followed by the inevitable complaint that the hostile takeover bid was too low. Inmet then said it would find a better suitor, but when that didn’t happen Inmet gave in to the inevitable in March after a majority of shareholders tendered their stake.

“The combination of the First Quantum and Inmet assets has created one of the world’s leading copper producers with a geographically diversified portfolio of high-quality operations and development projects in eight countries across four continents,” the company stated at the time.

While some praised First Quantum’s textbook hostile takeover strategy for getting the deal done, others say it got a helping hand from a drought in mining-sector mergers and acquisitions and falling commodity prices. Consider that the price of copper had fallen since First Quantum made its initial approach in late 2012. The opening bid came as the mining industry was already smarting from a number of overpriced deals made only a couple of years earlier. In fact, 2011 was one of the busiest years for mining M&A deals in recent history, and a year when prices of commodities, including copper, hit record highs.

Times have changed since then. Commodity prices have plummeted and some mining companies have been forced to take huge writedowns on assets they paid too much for back in the M&A heyday. That also means the price of acquiring a company would be much lower today than it was even a year ago.

In the aftermath of the takeover, First Quantum has become one of the world’s top five copper producers. Included in the spoils is the coveted Cobre Panama project, a prized asset in the Central American country it’s named after. Cobre Panama, 120 kilometres west of Panama City and 20 kilometres from the coast of the Caribbean Sea, is considered one of the world’s largest undeveloped copper deposits.

Since taking over Cobre Panama, First Quantum has done a review and says the project is expected to produce an average of 320,000 tonnes of copper each year, or about 20 per cent more than called for by Inmet’s plan to develop the site. But First Quantum will also need to take more time to build the mine, with production now expected in later 2017, instead of 2016.

The Inmet deal also gave First Quantum Inmet’s mines in Turkey, Spain and Finland, which provide it with some much-needed geographic diversity, given that its operations had been largely dependent on mines in Africa, considered a riskier jurisdiction in which to do business. Today, First Quantum operates seven mines and is developing five projects around the world. Its commodities include copper, nickel, gold, zinc and platinum group elements.

Sealing the deal with Inmet was a challenge. However, the hard part for First Quantum is to now build Cobre Panama and balance all of its other operations around the world during a mining market downturn with no clear end in sight.